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Turkey: Leaders Give Boost To Baku-Ceyhan Route For Caspian Oil

Prague, 2 November 1998 (RFE/RL) -- The proposed pipeline route to bring oil from the Caspian out to the world market through the Turkish port of Ceyhan received a powerful political boost last week as five regional leaders and the United States signed a declaration in Ankara supporting the project.

The presidents of Turkey, Azerbaijan, Georgia, Kazakhstan, and Uzbekistan signed the declaration along with U.S. Energy Secretary Bill Richardson. The signing coincided with celebrations of Turkey's 75th anniversary as a republic.

A spokesperson for the U.S. Embassy in Ankara, Helena Finn, says the declaration is intended to send a strong political message to the international oil companies which must finance any new pipelines for exporting Caspian oil.

The international oil companies are reported to prefer cheaper and shorter routes, including transporting oil southward through Iran, which remains under U.S. sanctions.

Finn told RFE/RL Friday (Oct. 30) that the importance of the declaration is that it commits the five regional presidents to intensive negotiations with energy companies to reach a mutually acceptable agreement on the Baku-Ceyhan and other east-west routes.

"They have committed to involving producers and shippers on the east and west side of the Caspian. They have committed their governments to intensive negotiations with energy companies to reach a mutually acceptable agreement. They have committed to providing the commercial incentives which are essential to financing the pipeline. And they have committed to bring this project to fruition. From today, we are no longer talking about whether we will have a pipeline from Baku to Ceyhan. We are talking about how."

Correspondents say that the incentives include offering tax and tariff reductions to oil company investors to lure them into financing the pipeline. The United States has announced a package of financial support, including an $823,000 grant to Turkey to help build its part of the proposed pipeline. Washington has said it also will provide political risk insurance for investors.

But the signing of the declaration, which Turkish President Suleyman Demirel hailed as a historical document, is still only a statement of political will.

Analysts say that the oil companies remain to be convinced that it will be in their best financial interest to invest in the 1,730 kilometer pipeline which is estimated to cost from $2.5 billion to $4 billion. The pipeline also passes through several countries -- including Georgia and Azerbaijan -- which have been troubled by separatist wars.

Many oil companies favor moving oil either to Georgia and through the Black Sea to the Mediterranean, or across Iran.

Yesterday's statement appeared intended to discourage both those alternatives.

The declaration stressed the danger of transporting oil through the Bosphorus, backing Turkey's longstanding argument that more oil tanker traffic will increase the risk of an accident and an oil spill which could cause an environmental catastrophe. That position effectively rules out political support for using an alternative pipeline from Baku to the Georgian port of Supsa on the Black Sea to move any large quantities of oil to the market. Oil companies already hope to move small amounts of early oil from the Caspian by that route.

Analysts say that Turkey is also pushing hard for the pipeline through its territory in order to collect transit fees on the oil and to increase its leadership role in the region. Baku, which counts on Turkish support in its dispute with neighboring Armenia over the separatist Azerbaijan region of Nagorno-Karabakh backs Ankara's position.

Meanwhile, the United States, which imposes economic sanctions on Iran, is against oil companies transporting Caspian oil through that country to the Persian Gulf. The Ankara declaration, by favoring east-to-west routes effectively rules out political support for an Iranian route from most of the region's governments.

One exception is Turkmenistan, which did not sign the declaration. Turkmenistan needs a way to move large quantities of oil west and is looking at the possibility of a pipeline under the Caspian to hook up with Azerbaijan. But analysts say building such a pipeline would require the consent of other states bordering the Caspian. While Ashgabat waits to resolve that problem, it reportedly currently is exporting small quantities of energy through Iran.

The oil companies, including British Petroleum and U.S.-based Amoco, Exxon, Pennzoil and Unocal, are due to announce their decision on the Baku-Ceyhan pipeline route early next month.